This paper examines the legal-economic dimension of collusive manipulation of prices from the perspective of the Kautiliya Arthasastra, an ancient Indian treatise on law and statecraft, which is among the oldest sources of information about cartels. It identifies cartels in the treatise, shows that cartels were treated more severely than individuals who manipulated prices, assesses the efficacy of penalties from the perspective of deterrence, and discusses the evolution of relevant laws. The economic analysis presented in the paper throws new light on the controversy surrounding the internal consistency of the Arthasastra. The paper also highlights the need to take note of the moral-legal environment within which pre-modern markets operated before studying them with the help of models developed for modern markets.